A decision to sell a long-term asset such as a property can sometimes be a challenging one for an investor. Are these factors making you consider selling your property?
Every property investor will be confronted with this question at some point in their investment journey. Therefore, knowing when to sell or hold onto your investment property is essential when building a portfolio. Due to the long-term nature of the property investment journey, the general rule is that property should at least be held for five to ten years to allow you enough time to study market conditions and further assess the viability of their portfolio.
Are these factors making you consider putting your property on the market?
Exit strategy – some investors venture into property having already developed an exit plan, which consists of selling the properties and using the funds for alternative business interests.
Recycling equity – this involves selling a property and using the equity to buy a better performing one. When going for this strategy, it is essential to take into account the costs involved in selling and acquiring a new property and whether the returns will be better in the long-term.
Poor performance – if a property fails to provide good rental yield and capital returns for at least five to 10 years, it may be considered to be performing poorly and eventually sold.
Diversification – property investors may sell some of their properties to unlock capital and diversify their financial risk into another asset class, such as listed equities.
Deteriorating neighbourhood – selling property due to unfavourable changes in the neighbourhood is common for inexperienced investors who did not conduct proper research when acquiring the property. This could also have been your former place of residence, which you might consider renting out after moving out.
Life changing events – major life changing events like getting married or having children may lead you to sell your properties and seek a new direction in life.
Market timing – new investors who do not adequately understand how the property cycle works may be tempted to sell when market conditions seem unfavourable.
There are many circumstances and underlying factors that may lead you to consider selling or holding your investment property.The decision should ultimately be based on your current circumstances, investment strategy and what you aim to achieve.
Words: Praven Subbramoney, CEO of Private Bank Lending at FNB.
Image source: Pinterest